Global markets continued to rally during November, led by easing of fears of US Fed tapering as well as improving economic data points. Fed Vice Chairman Janet Yellen said the Federal Reserve needs to do more work to support the economic recovery before it can return to "a more normal approach" to monetary policy. Similar dovish stance was also indicated by Ben Bernanke earlier.

On the geopolitical front, the breakthrough deal between the West and Iran is a positive.

On the economic front, the data was mixed. WPI and CPI continued to inch up due to higher food prices. Growth in eight core sector industries was (-)0.6% in October. On the positive side, the PMI data for November at 51.3 showed expansion for the first time after 4 months. Also, the 2QFY14 GDP grew by 4.8% yoy (beating expectations). CAD contracted sharply to 1.25% of GDP in 3QCY13 given the weak consumption trend in gold and increased exports.

In India, the benchmarks, BSE Sensex and NSE Nifty fell by about 2% during the month even as sentiment continued to remain constructive. The result of this churn has led to the action shifting to mid- and small-cap stocks. Domestic cyclicals have also begun to find favour with investors.

Outlook: As we enter the last month of 2013, we expect the markets to respond to the outcome of state elections and comments from the Fed officials regarding timing of the QE3 withdrawal.

The RBI monetary policy will also be an important event to watch out for. At about 14-14.5x consensus FY15 sensex estimated earnings, valuations are not undemanding.

Most of the defensive stocks are richly valued whereas stocks with low valuations do not have adequate growth visibility. However, we also understand that, continued foreign flows may continue to support the markets in the near term. We would recommend a selective approach across sectors. We do like select stocks in sectors like IT, Media and private sector banks.

Within beaten-down 'domestically-oriented' and 'investment-led' sectors, one can look at stocks having